Unconditional Probability

What is Unconditional Probability?

Unconditional probability, also known as marginal probability, refers to a probability that is unaffected by previous or future events. In other words, unconditional probability is the probability of an event regardless of the preceding or future occurrence of other events. In simplest terms, unconditional probability is simply the probability of an event occurring.

Summary:

Unconditional probability refers to a probability that is unaffected by previous or future events.

The unconditional probability of event “A” is denoted as P(A).

A conditional probability, contrasted to an unconditional probability, is the probability of an event that would be affected by another event.

Formula for Unconditional Probability

Therefore, the unconditional probability of an event happening is simply the probability of the event itself. An unconditional probability does not have a condition.

For example, the probability of rain tomorrow in itself is an unconditional probability.

Further examples of unconditional probabilities:

What is the probability of a dice rolling a 6?

What is the probability of landing a head on a coin toss?

What is the probability of drawing an ace of spades in a deck of cards?

Unconditional Probability vs. Conditional Probability

A conditional probabilityConditional ProbabilityConditional probability is the probability of an event occurring given that another event has already occurred. The concept is one of the quintessential, contrasted to an unconditional probability, is the probability of an event of which would affect or be affected by another event. In other words, a conditional probability, as the name implies, comes with a condition.

For example, recall the following unconditional probability: “What is the probability of rain tomorrow?” A conditional probability can be phrased as follows: “What is the probability of rain tomorrow, given today is sunny?”

Further examples of conditional probabilities:

What is the probability of rolling a 6 followed by a 4?

What is the probability that it is sunny today given that it rains tomorrow?

What is the probability of the S&P 500The S&P SectorsThe S&P sectors constitute a method of sorting publicly traded companies into 11 sectors and 24 industry groups. Created by Standard & Poor's (S&P) and Morgan Stanely Capital International (MSCI), they are also known as the Global Industry Classification Standard (GICS). hitting all-time highs and then consolidating at 3,000?

Example of Unconditional Probability

The following joint probability table shows the distribution of Social Science students in a Bachelor’s and Ph.D. programs:

Using your understanding of unconditional probability, determine:

The unconditional probability of randomly selecting a student who is pursuing a bachelor’s degree;

The unconditional probability of randomly selecting a student who is studying Sociology;

The unconditional probability of randomly selecting a student who is pursuing a Ph.D.; and

The unconditional probability of randomly selecting a student who is studying Economics.

Answers:

P(B) = 90%

P(S) = 10%

P(Ph) = 10%

P(E) = 45%

Unconditional Probability in the News

Unconditional probability can be commonly found in the news. For example, according to a CNBC article, the CME Group’s FedWatch tool showed traders pricing in a 100% probability of an interest rate cut in July 2019. This, in itself, is an example of an unconditional probability.

Additional Resources

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Basic Statistics Concepts in FinanceBasic Statistics Concepts for FinanceA solid understanding of statistics is crucially important in helping us better understand finance. Moreover, statistics concepts can help investors monitor

Subjective ProbabilitySubjective ProbabilitySubjective probability refers to the probability of something happening based on an individual’s own experience or personal judgment. A subjective

Independent EventsIndependent EventsIn statistics and probability theory, independent events are two events wherein the occurrence of one event does not affect the occurrence of another event

Quantitative AnalysisQuantitative AnalysisQuantitative analysis is the process of collecting and evaluating measurable and verifiable data such as revenues, market share, and wages in order to understand the behavior and performance of a business. In the era of data technology, quantitative analysis is considered the preferred approach to making informed decisions.

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